For Now, Municipalities Remain Subject to Anti-consumer Municipal Broadband Barriers Imposed by their States

Aug. 23, 2016

We all hate the high broadband prices brought on by a lack
of competition among Internet service providers (“ISPs”). Unfortunately, earlier
this month, the Sixth Circuit Court of Appeals overturned the FCC’s latest attempt
to help consumers by removing state-level barriers to ISP competition.

At issue in the case was an FCC order that “preempted,” or
removed, certain state laws in Tennessee and North Carolina that imposed
barriers on municipalities attempting to build or expand their own broadband
networks (rather than wait for private investment that may never appear). The
two states appealed the FCC’s order, alleging the FCC lacked authority to
preempt state laws in this area, an argument the court ultimately agreed with. (Disclaimer:
I was legal counsel to both New
America’s Open Technology Institute [“OTI”] and Senator
Edward J. Markey separately.) This was an unfortunate defeat for the FCC,
whose motives were laudable, and an unfortunate victory for large ISPs, who
have resisted competition and have used every arrow in their quiver to crush
it.

But how did we get to this point? This article describes why municipalities want to provide their own networks, and why so many states have
enacted barriers to municipal broadband. It concludes with a discussion of
the court’s decision and its impact.

Serving Un(der)served
Municipalities

Universal service has long been the cornerstone of American
communications policy. The concept has applied to the telephone network for
nearly a century and now constitutes an important goal in broadband policy. For
example, the FCC administers the “universal service fund,” which provides funds
to low-income people to purchase broadband through the Lifeline program and broadband
subsidies for schools and libraries through a program called “E-Rate”, among
other things. Yet there are still areas of the country that are unserved and
underserved by broadband, which is where municipalities can play a role.

Unquestionably, many municipalities are unserved or
underserved by high-speed broadband, particularly in rural areas. Recently, the
FCC determined that 39 percent of rural Americans — that’s 23 million people — lack
access to broadband speeds of 25 Mbps download and 3 Mbps
upload. Mid-sized
cities can also be unserved or underserved. In that situation, a
municipality can either wait until the area becomes economically viable for private
investment, which is unlikely without a major population density increase, or
it can take matters into its own hands and build the broadband network itself. Hundreds
of municipalities of varying shapes and sizes have built various types of broadband
networks with amazing success and economic benefit. Muninetworks.org tracks
them here.

Municipal broadband networks have brought about untold
economic and social benefits. OTI’s amicus
brief went into great detail on successful rural and mid-sized municipal
networks in Tullahoma, Tenn. (pop. 19,000), Longmont, Colo. (pop. 90,000), and
Lafayette, La. (pop. 120,000). Each network brought with it economic prosperity
by attracting companies and start-ups to their areas with promises of
lightning-fast broadband connections. Longmont’s network attracted several
companies to the area and lined up about three dozen business customers.
Lafayette’s network helped create thousands of jobs with high average incomes.
Tullahoma’s job growth outpaced that of Tennessee between 2009 and 2014 thanks,
in part, to the high-speed municipal network.

Municipal networks also provide high speed broadband
connections at low cost, which gives more residents across a broader range of
income access to high-speed broadband. Chattanooga’s network charges a mere $70/month for 1 Gbps service and
has relatively inexpensive 100 Mbps and 10 Gbps services; Tullahoma’s network
charges $40/month for 30 Mbps, and
$90/month for 1 Gbps services and has other tiers as well; Longmont’s network
charges $50/month
for 1 Gbps service for “charter” members (who sign up within the first three
months of when the network is available), otherwise it is $100/month. Another
network, in Sandy, Or. (pop. 10,000), charges
$40/month for a symmetrical 100 Mbps service or $60/month for a 1 Gbps service.
Even better, many of these networks led to lower rates and better services from
the private ISP competition in the area.

States Enact Barriers
to Municipal Networks

Rather than provide better service or compete with
municipalities on price, ISPs have focused on a different tactic: legislating
municipal broadband networks out of existence. ISPs have been largely
successful in lobbying for new anticompetitive laws in 20 states, particularly
through the efforts of the American
Legislative Exchange Council and telecom
lobbyists. Your state may have such restrictions, you can view a
comprehensive list here
and a map here.

The restrictions vary by state. Some common themes include
the following: prevent buildout beyond the municipality itself; impose many
onerous procedural requirements on municipalities (that do not apply to private
firms) before it can begin building a broadband network, such as holding referenda
where incumbents outspend community network advocates by up to 60:1; and impose
financial burdens such as requiring municipal networks to impute ongoing phantom
costs that the municipality does not actually incur, or prevent the
municipality from using general treasury funds to build the network, which is
not a common practice but nonetheless precludes one potential funding mechanism.

These laws effectively ensure that municipal networks do not
present a competitive option to private ISPs and prevent many unserved towns
from investing in their own infrastructure.

FCC Order and
Subsequent Appeal

Two cities with unquestionably successful municipal
networks, Chattanooga, Tenn., and Wilson, N.C., both received requests from
people outside their service area to expand their service, but state law either
prevented them from doing so or made it extremely burdensome to expand. Thus,
the cities petitioned the FCC to remove the state law barriers to municipal
broadband buildout. In 2015, the FCC granted these petitions and removed the
state laws because they constituted a barrier to broadband infrastructure
investment.[1]

Tennessee and North Carolina quickly appealed the decision,
arguing that the FCC did not have the authority to preempt state laws in this
area. The FCC, for its part, argued that it did have authority, primarily
because communications policy is a federal issue, and the state laws were
nothing more than a reflection of the states’ policy decision that municipal
broadband networks should not compete with private ISPs. After a heated oral
argument and a lengthy waiting period, the Sixth Circuit Court of Appeals overturned
the FCC’s order on the very narrow grounds that the FCC lacked the authority to
preempt the state laws at issue in this case. (For a more thorough legal
explanation, see this
article.)

What’s Next

This decision means little for the policy rationale behind
municipal broadband networks and the general desire to remove barriers to those
networks. The court explicitly did not question the FCC’s determination that
more municipal networks would be a good thing. The networks in Chattanooga,
Wilson, Tullahoma, Lafayette, Longmont, Sandy, and the myriad other areas with
municipal networks will continue to benefit their residents. Unfortunately,
those networks and others may experience difficulty expanding absent state law
changes.

In July 2016, while the court was still writing its opinion,
the Tennessee Department of Economic and Community Development issued a report
describing the extensive municipal broadband barriers in Tennessee, stating “[t]he
State of Tennessee could consider lifting administrative burdens and
restrictions to broadband infrastructure investment to fostering a more open
regulatory environment.” (Section B, p. 13 of Report) Thus, there appears to be
some disconnect between the state legislature and the Department about what is
best for the state and its residents.

Undoubtedly, it would have been preferable for the court to
find in favor of the FCC in this case. But even so, we are better off for
having the FCC engage in this debate; there is now a thorough official record
of the successes and benefits of municipal networks. The FCC proceeding also
led to more attention into how local governments can invest in their citizens.

This fight is far from over. It continues at the local level
in the hopes of increasing competition and ensuring everyone has access to
high-speed, affordable broadband.